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Wal-Mart Case Is a Blow for Big Cases and Their Lawyers

June 21, 2011 by Leave a Comment

The court’s decision will not just make it harder to bring big, ambitious employment class-action cases asserting discrimination based on sex, race or other factors, legal experts said. In the majority opinion, the court set higher barriers for bringing several types of nationwide class actions against a large company with many branches.

In its majority opinion, the court essentially said that if lawyers brought a nationwide class action against an employer, they would have to offer strong evidence of a nationwide practice or policy that hurt the class. In the Wal-Mart case, the court wrote that the plaintiffs had not demonstrated that Wal-Mart had any nationwide policies or practices that discriminated against women. The opinion, written by Justice Antonin Scalia, noted that Wal-Mart’s official corporate policy opposed discrimination, while the company gave the managers at its more than 3,400 stores considerable discretion over pay and promotions.

“In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” Justice Scalia wrote.

Heidi Li Feldman, a professor at Georgetown Law Center, said similar reasoning might make it tougher for plaintiffs to bring a class action against a mortgage lender accusing it of having a nationwide policy of defrauding borrowers. “A big mortgage broker might say, ‘At the national level, we have policies to abide by all of the rules and regulations that are applicable, and we delegate a lot of discretion to our branches,’ ” she said.

The ruling was widely hailed by business groups, some of which filed amicus briefs urging the court to limit class actions.

“We applaud the Supreme Court for affirming that mega-class actions such as this one are completely inconsistent with federal law,” said Robin S. Conrad, executive vice president of the United States Chamber of Commerce’s National Chamber Litigation Center. “Too often the class-action device is twisted and abused to force businesses to choose between settling meritless lawsuits or potentially facing financial ruin.”

The ruling will push plaintiffs’ lawyers into filing fewer huge class actions and more cases on behalf of individuals or smaller groups, lawyers said. That will raise costs and give lawyers less incentive to take on class actions and other complex litigation. The Wal-Mart case, for example, has stretched for a decade, with lawyers and the legal foundation that brought the case expecting to receive some portion of the back pay for 1.5 million current and former Wal-Mart employees if they eventually won the case in court or reached a settlement.

The Supreme Court decision “strikes a blow to those who face discrimination in the workplace to be able to join together and hold companies, especially large companies, accountable for the full range of discrimination they may be responsible for,” said Marcia D. Greenberger, co-president of the National Women’s Law Center.

In his opinion, Justice Scalia said it was unacceptable to allow employment discrimination lawsuits to proceed as huge class actions when monetary awards would be based on a broad formula per plaintiff, without having an individual assessment of how much each plaintiff had suffered.

He wrote that to allow that to happen in the Wal-Mart case, the largest employment class action in American history, would have been hugely unfair to Wal-Mart because it might have had to pay out damages without many of the plaintiffs demonstrating how much they were injured.

Paul Grossman, a lawyer in Los Angeles for the Paul Hastings firm who represents many employers, including Wal-Mart, in employment lawsuits, said employers were seeing many unmeritorious class-action cases. “Now you need a real class action with similarly situated people where common issues predominate,” he said.

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Bucks: High Court Ruling May Reduce Consumer Clout

April 28, 2011 by Leave a Comment

Score another one for big business, it seems. The Supreme Court ruled Wednesday that companies can use contracts that prevent consumers claiming fraud from banding together to file group arbitration claims and, possibly, class-action lawsuits.

The case has broad implications for consumers because all sorts of companies, like banks, builders and even nursing homes, use contracts that require disputes to be settled through arbitration and forbid class actions. Banks and credit card companies, in particular, have come under scrutiny recently for their use of such binding arbitration clauses in customer contracts.

“I think it will make it very difficult for consumers to recover for overcharges, mischarges, incorrect billings or identity confusion in disputes with credit card companies or banks,” said Michael Donovan, a lawyer in Philadelphia who co-wrote an amicus brief filed on behalf of the plaintiffs in the case. The decision, he said, will “make it difficult for consumers in resolving the typical disputes that they have with companies large and small.”

Here’s some background: The decision involved a case brought against ATT Mobility by a California couple who objected to a $30 charge for what was advertised as a “free” cellphone. They filed a lawsuit seeking class-action treatment. But the couple had signed a standard contract with ATT that required them to resolve disputes through arbitration — a private legal proceeding — and barred them from banding together with other customers to seek class-action treatment, whether through arbitration or in a lawsuit brought in a traditional court.

The company, relying on the contract, said the case couldn’t proceed in court, or as a class-action case in any venue. Lower federal courts refused to enforce the arbitration agreement. The case ended up at the Supreme Court, which found for ATT.

The immediate impact of the decision, Mr. Donovan said, is that consumers will have a hard time finding a lawyer to represent them for claims of small dollar amounts — which means they, in effect, will just have to accept such losses. Say your bank charges you a $35 fee for a bounced check, and you dispute that you owe it but you can’t get the bank to refund it. That amount is too small to be worth a lawyer’s time — or what you’d have to pay to hire him. Sure, you could try to pursue arbitration and represent yourself. But Mr. Donovan notes that companies using contracts with such clauses typically have entire staffs devoted to such matters. “They can just crush the individual who’s not familiar with the legal arguments,” he said.

There is the possibility, according to an article in American Banker, that the new federal Consumer Financial Protection Bureau may propose regulations to limit the use of such language in contracts used by banks and other financial institutions, which have long been criticized by consumer advocates. But that’s likely to take some time, especially since the appointment of the bureau’s first director is currently caught in the midst of a political battle.

Have you ever gone to arbitration to resolve a dispute with your bank, or another company? How did it turn out for you?

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When a Lawsuit Is Too Big

April 3, 2011 by Leave a Comment

Justice Antonin Scalia seems to think so, judging by his comments on Tuesday during the Supreme Court argument in the biggest employment discrimination class action in history.

“We must have a pretty bad judicial system,” he said, reflecting on what he had just heard from a lawyer for hundreds of thousands of women suing Wal-Mart over what they say was unfair treatment on pay and promotions. The lawyer had said that a trial judge could rely on statistical formulas rather than testimony and personnel records to decide how much money the company would have to pay each plaintiff if it lost.

“Is this really due process?” Justice Scalia asked.

In other words, does the impersonality of the suit threaten its ability to be fair to each plaintiff and to Wal-Mart, the country’s biggest private employer?

The mass production of justice through class actions can indeed test the limits of the role that courts play in society. But the enormous size of modern institutions, it has been argued, requires efficient, streamlined procedures like class actions to address their failures.

“We are in the domain of mass litigation in mass society, where the private lawsuit is a regulatory enterprise,” said Samuel Issacharoff, a law professor at New York University.

“You need to have mechanisms of enforcement that correspond to the scale of the economic activity.”

Suzette M. Malveaux, a law professor at Catholic University in Washington, agreed that class actions have an important role to play in many cases, particularly those involving fraud and discrimination.

“It’s a balancing act between efficiency and fairness,” she said.

The issue tends to divide lawyers and scholars along ideological lines.

Conservatives and business groups say class actions are a form of regulation through litigation and insert courts into matters better left to administrative bodies. Consumer and civil rights lawyers counter that without class-action treatment, grave but widely dispersed wrongs would never be addressed.

The day after the Wal-Mart argument, a prominent federal appeals court judge issued an opinion in a similar but smaller case, this one brought by about 500 women against Rolls-Royce.

How far class-action procedures “can be stretched is the issue in the gigantic class action against Wal-Mart now before the Supreme Court,” Judge Richard A. Posner of the United States Court of Appeals for the Seventh Circuit in Chicago wrote for a unanimous three-judge panel, ruling against class-action treatment.

“The present case is not as big a stretch,” he said, “but it is big enough.”

Judge Posner said he was concerned about the due process rights of so-called absent class members: women who would be bound by the result in the case even though they had not volunteered for it and had no right to opt out and sue on their own. And he added that something more than a “mechanical computation” was needed to decide who gets how much money should the women win. Rather, he said, the case would require “500 separate hearings.”

Perhaps the most counterintuitive wrinkle in the typical class action is that only a handful of named plaintiffs have agreed to be represented by the lawyers who brought the case. Yet all of the class members will be held to the results those lawyers achieve.

“Ordinarily, you enforce your own rights,” Professor Malveaux said. “Here, someone is representing you without your consent. We only allow that in exceptional circumstances.”

She added that the Wal-Mart case qualified for the exception. “The idea of every woman coming forward and challenging their store manager is really unlikely,” she said.

Richard Epstein, a law professor at New York University, disagreed, noting that the plaintiffs in the Wal-Mart case are suing over “decentralized personnel decisions” in thousands of stores.

“You want to wring your hands,” he said. “This case is so crazy.”

At the argument last week, some of the justices appeared sympathetic to the plaintiffs’ complaint but wary about the courts’ ability to handle so large a case.

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